Inherent Limitations of Internal Control System:

No matter how good an Internal control system is, it can only provide reasonable assurance and not absolute assurance that its objective relating to prevention and detection of errors/frauds, safeguarding of assets etc., are achieved

This is because it suffers from some inherent limitations, such as-

(i) Management’s consideration that cost of an internal control does not exceeds the expected benefits.

(ii) Most controls do not tend to be directed at unusual transactions.

(iii) The potential of human error due to carelessness, misjudgment and misunderstanding of instructions.

(iv) The possibility that control may be circumvented through collusion with employees or outsiders.

(v) The possibility that a person responsible for exercising control may abuse that authority.

(vi) Compliance with procedures may deteriorate because the procedures becoming inadequate due to change in condition.

(vii) Manipulation by management with respect to transactions or estimates and judgements required in the preparation of financial statements.

(viii) Inherent limitations of Audit.